Croda 2020 results

Croda International Plc:

2020 Annual Results2 March 2021

Smart science to improve lives™

Cautionary statement

This review is intended to focus on matters which are relevant to the interests of shareholders in

the Company. The purpose of the review is to assist shareholders in assessing the strategies

adopted and performance delivered by the Company and the potential for those strategies to

succeed. It should not be relied upon by any other party or for any other purpose. Forward looking

statements are made in good faith, based on a number of assumptions concerning future events

and information available to the Directors at the time of their approval of this report. These forward

looking statements should be treated with caution due to the inherent uncertainties underlying

such forward looking information. The user of this review should not rely unduly on these forward

looking statements, which are not a guarantee of performance and which are subject to a number

of uncertainties and other facts, many of which are outside the Company’s control and could

cause actual events to differ materially from those in these statements. No guarantee can be given

of future results, levels of activity, performance or achievements.

Adjusted results

Unless otherwise stated, all performance data refers to adjusted results in reported currency.

These are stated before exceptional items, acquisition costs and amortisation of intangible assets

arising on acquisition, and tax thereon. The Board believes that the adjusted presentation (and the

columnar format adopted for the Group income statement) assists shareholders by providing a

meaningful basis upon which to analyse underlying business performance and make year-on-year

comparisons. The same measures are used by management for planning, budgeting and reporting

purposes and for the internal assessment of operating performance across the Group. The

adjusted presentation is adopted on a consistent basis for each half year and full year results.

Constant currency results

All data is at reported currency rates unless otherwise stated. Reported currency results reflect

current year performance translated at reported rates (actual average exchange rates). Constant

currency results reflect current year performance for existing business translated at the prior

year’s average exchange rates. For constant currency profit, translation is performed using the

entity reporting currency. For constant currency sales, local currency rates are translated into the

most relevant functional currency of the destination country of sale (for example, sales in Latin

America are primarily made in US dollars, which is therefore used as the functional currency).

Sales in functional currency are then translated into Sterling using the prior year’s average rates

for the corresponding period. Constant currency results are reconciled to reported results in the

Finance Review.

Underlying results

Underlying sales and operating profit reflect constant currency values adjusted to exclude the

impact of acquisitions. They are reconciled to statutory sales and operating profit in the Finance

Review.

Other definitions

• The Core Business comprises Personal Care, Life Sciences and Performance Technologies.

• Return on sales is adjusted operating profit divided by sales, at reported currency.

• Net debt comprises cash and cash equivalents (including bank overdrafts), current and non-

current borrowings and lease liabilities.

• The leverage ratio is the ratio of net debt to Earnings Before Interest, Tax, Depreciation and

Amortisation (EBITDA) adjusted to include EBITDA from acquisitions is the last 12 month

period. EBITDA is adjusted operating profit plus depreciation and amortisation.

• Free cash flow is EBITDA less movements in working capital, net capital expenditure, payment

of lease liabilities, non-cash pension expense, and interest and tax payments.

Alternative performance measures

Non-statutory terms are defined in the ‘Alternative performance measures’ section of the Finance

Review accompanying these results.

Cautionary statement and definitions

2

Front cover images: Top: two thirds of Avanti employees work in scientific roles. Bottom: one third of Iberchem employees are in R&D roles.

Smart science to improve lives™ 3

• 2020 highlights

• Financial performance

• Strategic update

• Q&A

Agenda


2020 highlights

Steve Foots – Chief Executive Officer

4


Strong strategic delivery built on resilient financial performance

5

Resilient financial performance

• Limited adverse financial impact from COVID-19

• Back to growth in H2; growth acceleration in Q4

• Resilient profit performance

• Robust free cash generation

• Increase in full year dividend

Strong strategic delivery

• Purpose-led: Smart science to improve livesTM

• Ambitious 2030 sustainability targets

• Accelerated organic investment

• Completed two key acquisitions

• Over 80% of profit from life science and consumer markets


Employees

No job losses,

furlough or

salary reductions

Local

Communities

Financial assistance

provided

Customers

and suppliers

Flexible payment

terms

Our response to COVID-19

6

Objective: live up to our Purpose – Smart science to improve livesTM

Delivering for all our stakeholders

Purpose / Sustainability

Decarbonisation investment

Investing in our future

Shareholders

All dividends paid

Expanding Life Sciences

Transforming drug delivery: capex; Avanti

Strengthening Personal Care

Iberchem

Fast grow China

>15% increase in resourcing


Sales

H2 recovery and acquisitions

7

Core Business revenue

Resilient margin

Return on sales

2020 – a resilient financial performance

Adverse product mix

Operating profit

Cashflow supporting

increased investment

Free cash flow

Margin Profit Cash

+2.3%

£1,293.9m

-1.7ppts

23.0%

-4.0%

£319.6m

-12.3%

£176.9m

Change in sales and operating profit in constant currency.


Sales recovery in Q4; another record year for Life Sciences

Life

Sciences

• Record sales and profit driven by Health Care and Seed Enhancement

• Crop Protection ahead (before planned product withdrawals)

• Delivering components for Pfizer-BioNTech COVID-19 vaccine

Personal

Care

• Sales recovered month-on-month from May; underlying Q4 sales in line with prior year

• Margin impacted by adverse mix – Beauty Actives sales lower as prestige channels closed

• Iberchem acquisition unlocks significant growth and revenue synergies

8

Performance

Technologies

• Resilient sales – home care and packaging demand; overall return to growth in Q4

• Profit impacted by adverse mix and operating leverage

• Redeploying capital into renewable technologies and Asia expansion


Financial performance

Jez Maiden – Chief Financial Officer

9


Resilient performance despite impact of pandemic

10

Adjusted results, £m 2020 reported 2019 reported % change

% change

constant

currency

Sales 1,390.3 1,377.7 0.9% 1.1%

Operating profit 319.6 339.7 (5.9)% (4.0)%

Profit before tax 300.6 322.1 (6.7)% (4.8)%

Return on sales 23.0% 24.7% (1.7)%pts

Basic EPS 175.5p 185.0p (5.1)%

Ordinary dividend declared 91.0p 90.0p 1.1%

Free cash flow 176.9 201.7 (12.3)%


IFRS result includes impact of acquisitions

11

£m 2020 reported 2019 reported

Adjusted PBT 300.6 322.1

Exceptional items (5.8) (10.7)

Acquisition costs (11.7) (0.3)

Amortisation of intangible assets (13.6) (8.8)

Reported PBT 269.5 302.3

Basic EPS 155.1p 172.8p


Volume and acquisitions more than offset reduction in price / mix

12

669.4

+X%

Change in sales in constant currency except where stated.

1,390.3

1,377.7

-3.0%

1.2%

4.1% -1.2%

-0.2%

FY 2019 reportedcurrency

Price / mix Volume Acquisitions IndustrialChemicals

Currencytranslation

FY 2020 reportedcurrency

Core Business sales +2.3%

Sales, £m

Core Business


Improved H2 underlying sales trend in all regions except Asia

H1 sales growth %

H2 sales growth %

Full year sales growth %

(7)% (1)% 0% (24)%

0%

7%

0%

8%

Europe North

America

Asia Latin

America

Destination underlying sales for the Core Business.

(6)%

3%

Core

Business

(4)%3%

0% (9)% (2)%

13


Second half sales recovery enhanced by acquisitions

14

Change in sales in constant currency.

H1 2020 H2 2020 H2 2020 H2 2020 FY 2020

Underlying Acquisitions Total

Personal Care (9)% (3)% 9% 6% (2)%

Life Sciences (2)% 16% 17% 33% 15%

Performance Technologies (6)% (1)% 0% (1)% (3)%

Core Business (6)% 3% 8% 11% 2%

Industrial chemicals (18)% (9)% 0% (9)% (13)%

Group (7)% 2% 8% 10% 1%


Sector performance led by record year in Life Sciences

15

-470bps

28.7%

+160bps

32.2%

-310bps

13.0%

-170bps

23.0%

Growth in sales %

Growth in operating profit %

Return on sales

(1.8)%

14.8%

(3.2)% 1.1%

(15.3)%

25.4%

(21.3)% (4.0)%

Personal

Care

Life

Sciences

Performance

Technologies

Group

Change in sales and operating profit in constant currency.


• Reduced demand for ‘going out’ products and prestige

channel disruption resulting in adverse profit mix

• Month-on-month recovery for Croda since May 2020

• Europe and Asia subdued; Americas robust

• Strengthen to Grow strategy: Iberchem and Home

Care set to add strong growth

16

Sales growth in constant currency. L’Oréal worldwide beauty estimates are 2020 provisional estimates at constant currency exchange rates sourced from L’Oréal 2020 annual results.

Personal Care significantly impacted by COVID lockdowns

Full year sales reduction due to price / mix

Q4 underlying sales recovery

Q1 Q2 Q3 Q4

Volume Price / mix Acquisition Total

-5%

+4%

-1% -2%

-2%

-17%

-6%

0%

-14%

-5%

L’Oréal worldwide beauty market estimates for 2020

Luxury Mass market

Highlights


0

10

20

30 >50%

Sales growth in constant currency. 1Crop Protection excluding impact of planned withdrawal from NPE ingredients. 2Excluding Avanti. 3Avanti full year % increase includes period prior to Croda ownership. 4For period of ownership only.

Record performance in Life Sciences driven by patient health care

++

++

–

+

+

–

• COVID-19 creating new Health Care opportunities

• Continued growth in high-value niches, including

speciality excipients and vaccine adjuvants

• Successful acquisition / integration of Avanti;

new Pfizer-BioNTech vaccine contract

• Innovation-led growth in Crop Protection and Seed

Enhancement

• Volume growth and margin progression

• Expand to Grow strategy: fast-growth, high-value

businesses

Crop

Protection1

Seed

Enhancement

Avanti

(proforma)3

+11%+10%

+3%

Health

Care2

TotalAcquisition4Price / mixVolume

+7%

0%

+8%

+15%

Strong year-on-year sales growth in all businesses

Full year sales increase driven by volume and Avanti acquisition


Sales growth in constant currency.

Resilient sales in Performance Technologies in challenging markets

+

+–

+

+

–

–

5767

7585

69

• Q2 weakened, alongside auto / industrial plant closures

• Steady second half recovery – encouraging Q4 exit rate

• Marked variation in business performance

– Weak Energy Technologies and Oil & Gas

– Resilient Smart Materials and Home Care

• Profitability impacted by operating leverage,

lower production volume and adverse product mix

• Refine to Grow strategy: reduce cyclicality,

high tech/regional market growth, sustainability focus

Q3

-2%

Q1 Q2

Steady recovery in sales from Q2 low

Full year sales reduction due to price / mix

-3% 0% -3%0%

TotalAcquisitionPrice / mixVolume

-9% -6%

+5%

Q4


From Personal Care to Consumer Care

19

Growth in new markets Geographic expansion Bolt-on acquisitions

Proforma sales and operating profit show the 2020 outcome had Iberchem and Avanti been owned for the full year, not including changes in allocation of central and indirect costs.

2020 adjusted results, £m As reported New structure Proforma As reported New structure Proforma

Consumer Care 475.9 527.8 666.6 136.5 146.5 171.0

Life Sciences 401.6 392.5 410.5 129.4 124.5 127.5

Performance Technologies 416.4 373.6 373.6 54.0 48.9 48.9

Core Business 1,293.9 1,293.9 1,450.7 319.9 319.9 347.4

Industrial Chemicals 96.4 96.4 96.4 (0.3) (0.3) (0.3)

Group 1,390.3 1,390.3 1,547.1 319.6 319.6 347.1

Sales Adjusted operating profit


Robust cash generation supporting investment and dividend

20

Clear capital allocation

1. Reinvest for organic growth

2. Regular dividends

3. Acquire technologies / adjacencies

4. Appropriate balance sheet / return excess capital

Key sources and uses in 2020

Sources £m Uses £m

EBITDA 388 M&A (870)

New equity 615 Capex (121)

New debt 237 Dividend (116)

Interest / tax (88)

Strategic investment delivered

• Regular capital programme: £90m pa

• Accelerated capital investment, primarily in Health Care

– 2020: £30m

– 2021: £40m

• Medium-term capex: 6% sales

• Key acquisitions in Health and Consumer

• Leverage: 1.8x

Leverage target: 1-2x


Strategic update with Purpose

Steve Foots – Chief Executive Officer

21


A strategy for growth driven by sustainability and innovation

Smart science to improve livesTM

GrowthInnovationSustainability

Consumer Care

Strengthen to grow

Life Sciences

Expand to grow

Performance

Technologies

Refine to grow

Strategy

Sector strategies

Sector megatrends

Health and wellbeing Natural, ‘clean’ ingredients Renewable technologies


• Drug delivery

• Pharmaceutical services

• Fragrance development

• Formulation expertise

• China, US, Middle East, Africa

And moving to faster growth life science and consumer markets

Increasing share of profit generation

2020

86%2018

75%

Proportion of adjusted operating profit from life science and consumer markets (2020 proforma)

Delivering fast growth in China

Sales Customers Employees

2020 2021

x3

x2

x3

“China growth” and ”share of profit generation” charts show data for life science and consumer markets.

Accessing higher organic growth

23

Industrial Consumer Life Sciences

cGDP

Mid

single %

Mid-high

single %

Significant increase in innovation resource


Expanding Life Sciences by accelerating move to patient health

24

Standard

excipients

Consumer

health

Enhancing active performance

Speciality

excipients

Vaccine

adjuvants

Lipid

delivery

8/10top selling

drugs

Moving from consumer health to patient health

Key trends

Stricter regulation

Drug safety and integrity COVID-19 opportunities

Shorter R&D cycles

Growing, aging population

Higher health care spending

Biologic drug pipeline

Formulation challenges

8/10top selling

drugs


Expanding Life Sciences by accelerating innovation

New vaccine adjuvants

- New US laboratory

- Increasing customer intimacy

- Accelerating new product and

process innovation

- c£0.5bn market opportunity

- Over 30% sales growth

- New adjuvant technologies

- Powerful Croda integration

- Over 50% proforma* sales growth

- Integration on track

- ‘Incubator’ for high-value solutions

- Rich IP, exciting pipeline

Vaccine adjuvants

- c£2bn market opportunity

- 9% sales growth

- First multi-site excipient supplier to

achieve global accreditation

Speciality excipients

Lipid delivery Health Care innovation

Sales growth in constant currency. *Avanti full year % increase includes period prior to Croda ownership.


Expanding Life Sciences by accelerating organic investment

26

Drug discovery

and research

Phase I to IV

clinical trials

Regulatory review

and approval

Commercialisation

and scale up

Speciality excipients

Croda capability£30m investment doubling US capacity,

expanding in UK and Japan

Vaccine adjuvants

Biosector (plus Avanti)Investing £10m on capacity

expansion in Denmark

Lipid delivery

Avanti

Reprioritised £10m in 2020.

£40m capex in 2021 for Avanti

and UK scale-up


Expanding Life Sciences to satisfy many near-term opportunities

- New product registrations driving

China growth

- Japan, Korea and India key markets

- Strengthened regulatory support to

accelerate approvals

- Critical delivery system

components

- Lipid technology; protects and

transports mRNA

- Minimum $125m revenue in 2021*

- mRNA – a pivotal new drug class

- Multiple new treatments identified

– eg oncology, infectious diseases

- New and intelligent delivery systems

required

Gene therapy

- Working on >60 COVID-19 projects

- Vaccine and therapeutic treatments

- Projects across all three patient

health businesses

COVID-19 treatmentsPfizer-BioNTech vaccine

Asia expansion

*Based on contractual commitments received to date.


Strengthening Consumer Care

28

Five growth businesses all driven by sustainability and innovation

Key consumer trends Beauty

Actives

Beauty

Effects

Beauty

Formulation Fragrances Home Care

Environmental and

ethical standards ✔︎ ✔︎ ✔︎ ✔︎ ✔︎

‘Purpose brands’ –

environmental / social impact ✔︎ ✔︎ ✔︎ ✔︎ ✔︎

‘Clean beauty’ –

only necessary ingredients ✔︎ ✔︎ ✔︎ ✔︎

Vegan-friendly ingredients;

£20bn market by 2025 ✔︎ ✔︎ ✔︎

Ingredient integrity: origin,

purity and certification ✔︎ ✔︎ ✔︎ ✔︎ ✔︎


Capturing cross-sell synergies

• Regional, ‘white label’ and

independent brands

• Top 10 countries identified

• c€50m pa by 2025

400

5,500

3,000

Shared Croda Iberchem

Customers

Strategic priorities

• Leverage combined strength

• Create a ‘one-stop-shop’

• Capture cross-sell synergies

Creating a ‘one-stop-shop’

• Combining on-trend fragrances

and Croda’s critical ingredients

• Stable formulations

• Agile and responsive

Leveraging combined strength

Strengthening Consumer Care through Iberchem

29

Region Croda Iberchem

Europe & the

Americas

74% 25%

Asia, Middle

East & Africa

26% 75%


Strengthening Consumer Care through Home Care

30

Key trends

Near-term opportunities

Sustainable cleaning

Sensory technologiesFabric care Biotechnology

• Hygiene; increased focus to continue post COVID-19

• Fabric care and sensory for consumer benefits and effects

• Sustainable ingredients; bio-based ECO surfactants

• Offer ‘full’ formulations including fragrances

Unilever ‘Brilliance’ Award

• Protein-based fabric technology to extend garment life

• Recognised by Unilever Clean Future programme to

eliminate fossil-based ingredients

• Superior performance and ‘care’ benefits


Silverfree™ by Sederma

- €25m Alban Muller acquisition

- Actives / botanicals specialist

- 100% natural

- Adds to Sederma and Crodarom

- Ethically sourced active ingredient

- Plant extract to combat loss of

skin elasticity and firmness

- “It’s right in line with the wellness

and pro-age movements reshaping

personal care”

31

Strengthening Consumer Care through Personal Care innovation…

- Introducing successful French

botanical ingredients to Asia

- Establishing new China site

- Botanical extracts based on

traditional Chinese medicine

- Novel lipopeptide

- Fights hair greying and restores

original hair pigmentation

- Proven in-vitro and by four

independent clinical studies

Actives expansion

Feminage™ by Sederma Asia expansion

FeminageTM quote from ‘Cosmetics Design.’


…to meet our customers’ sustainability requirements

Biobased Raw Materials

Ethical Sourcing

Sustainable Manufacturing

Ingredient Transparency

Sustainable Innovation

Ingredient

Integrity


…to meet our customers’ sustainability requirements

Biobased Raw Materials

Ethical Sourcing

Sustainable Manufacturing

Ingredient Transparency

Sustainable Innovation

Ingredient

Integrity

80% increase in product data questionnaires from L’Oréal

20202019


Built on a strong sustainability strategy

34

Innovation, technology and customer-driven

Most sustainable

ingredient supplier

by 2030

Climate

Positive

Land

Positive

People

Positive

2020 highlights

• Intermediate 2021-2025 milestones published

• KPIs embedded in remuneration

• President Sustainability in post

• Non-financial metrics alongside financial KPIs

• 10 decarbonisation roadmaps in place

• Croda: enabling customers to deliver their

own commitments

ClimateImprovement

in energy mix

since 2015

Land Extra hectares

of land saved

PeopleEquivalent doses

of our components

in Pfizer vaccine

ClimateBio-based

raw materials

2020 results


• Delivering for all stakeholders in response to COVID-19

• Increasing exposure to life science and consumer markets

• Accelerating strategic delivery – two key acquisitions

• Outstanding performance in Life Sciences

• Creating market-leading Consumer Care platform

• Elements of Consumer Care and Performance

Technologies more difficult to predict near term

• Encouraging 2020 exit rates

• Recovery, full year of acquisitions and Pfizer-BioNTech

COVID contract will benefit

• Well positioned for profitable growth; expect to make

good progress

Summary

35

OutlookDelivery


Additional information

36


Significant headroom and long maturities

37

Significant headroom+, £m ….

801

107

378

Net debt

Cash

Undrawn committed

+At 31 December 2020. *Excluding leases.

…with long maturites*

21 22 23 24 25 26 27 28 29 30

£100m

£600m

Total committed funding: £1,244m


Reduced IAS19 deficit on retirement benefits

38

£m 31 Dec 2020 31 Dec 2019

Market value of assets 1,536.8 1,390.8

Value of liabilities (1,569.1) (1,465.8)

Deficit pre tax (32.3) (75.0)

Deferred tax 7.0 14.9

Deficit post tax (25.3) (60.1)


Additional financial information

39

Currency translation

• Limited adverse profit impact in 2020; primarily “local” currencies versus GBP

• 2020 average rates:

– $1.285 (2019: $1.278)

– €1.125 (2019: €1.141)

• Average annual impact:

– £0.8m per $cent pa

– £0.6m per €cent pa

• US$ and € represent 65% of currency translation exposure


Documents

Croda 2020 results